Correlation Between Merck and KFT

Can any of the company-specific risk be diversified away by investing in both Merck and KFT at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Merck and KFT into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Merck Company and KFT, you can compare the effects of market volatilities on Merck and KFT and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Merck with a short position of KFT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and KFT.

Diversification Opportunities for Merck and KFT

0.0

Correlation Coefficient

Merck  KFT

Pay attention - limited upside

The 3 months correlation between Merck and KFT is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and KFT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KFT and Merck is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Merck Company are associated (or correlated) with KFT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KFT has no effect on the direction of Merck i.e., Merck and KFT go up and down completely randomly.

Pair Corralation between Merck and KFT

If you would invest  10,575  in Merck Company on January 24, 2024 and sell it today you would earn a total of  2,119  from holding Merck Company or generate 20.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

Merck Company  vs.  KFT

Merck Company

Risk-Adjusted Performance

8 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady basic indicators, Merck may actually be approaching a critical reversion point that can send shares even higher in May 2024.

KFT

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KFT has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, KFT is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Merck and KFT

The main advantage of trading using opposite Merck and KFT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, KFT can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in KFT will offset losses from the drop in KFT's long position.

The idea behind Merck Company and KFT pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.